Global Markets Daily: Surprise Effect — Lessons from Past Fed Meeting Day Surprises

First-page research excerpt

Economics Research

29 July 2026 | 7:38AM EDT

Global Markets Daily: Surprise Effect — Lessons from Past Fed Meeting

Day Surprises

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The repricing of Fed hike risk has set the stage for today’s FOMC decision to

deliver the largest non-cut meeting day surprise in almost 30 years. Our baseline

for the FOMC to leave the policy rate unchanged would be consistent with a

roughly 9bp dovish surprise versus market pricing. A 25bp hike would represent

a 16bp hawkish surprise, which we estimate would be the largest meeting day

surprise outside of cuts since the Fed started releasing statements to announce

William Marshall

+1(212)357-0413 |

Goldman Sachs & Co. LLC

Friedrich Schaper

+1(917)343-3214 |

Goldman Sachs & Co. LLC

policy rate changes.

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Over the full sample, market reactions to non-cut meeting day surprises do not

have a reliably consistent relationship with the direction and/or magnitude of the

surprise. While volatility has been on average higher in the immediate window

following surprises in excess of 5bp, that relative bump in volatility tends to

decay quickly.

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The evolution of the 1994 hike cycle (which saw a series of significant surprises)

and evidence from the first material (>5bp) surprise in a cluster offer somewhat

clearer takeaways, however. Specifically, initial surprises have typically resulted in

directionally consistent yield responses—selloffs on hawkish outcomes, rallies on

dovish ones—with a modest bias for front-end rates to lead on average.

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Our expectation is that today’s (July 29) decision should primarily influence the

pace and peak of hike risk, with points further out likely somewhat stickier. The

context of the recent shift in Fed leadership is a potential complicating factor,

but the week-to-date decline in energy prices dampens the risk that an on-hold

decision leads to more curve volatility and boosts risk premia further out the

curve.

Surprise Effect — Lessons from Past Fed Meeting Day Surprises

The repricing of Fed hike risk during the blackout period has positioned today’s

FOMC decision as the first major test of Chairman Warsh’s shift in approach to

communication. We expect the FOMC to leave the fed funds rate unchanged at its

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